Abstract

The aim of this paper is to assess the cyclicality of fiscal policy, its evolution over time and the effectiveness of fiscal rules in Angola, the second oil producer in Africa. Existing literature suggests that fiscal policy in commodity-exporting economies has become less pro-cyclical in the last decade, or at least has remained unchanged. Oil-exporting economies seem to be the exception to this pattern, and pro-cyclicality has increased even when fiscal rules to prevent it have been introduced. However, available evidence for oil-producers is based in findings for developed economies, such as, Norway, and not developing economies, despite their share of Global oil production. Our paper contributes to bridge this gap by assessing cyclicality, its time path, and the role of fiscal institutions that aim to reduce it, in a developing oil-rich economy, Angola. For this purpose we use time-varying techniques (rolling cointegration and VECM) to analyse previously unpublished data for the period 2004M1-2014M12. Our findings suggest that fiscal policy tends to be pro-cyclical to oil-shocks and that this has intensified after the 2007/8 Global Crisis. Further, we find that adjustment to long-run budget imbalances are achieved through revenue, rather than spending. Finally, we find that fiscal rules, such as, the Oil Price Differential Account or the Sovereign Wealth Fund have not been effective to tame this pro-cyclicality.

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